I'm not going to attempt to predict impending hyperinflation and make investment decisions based on it, but I may make speculations based on it as part of the VP. Also, for general curiosity, I'd like to understand the scenario better.
The US had hyperinflation in the 1970s. What happened that sparked it? Did we have indications? Did we have massive deflation before it?
What did we learn from the 1970's hyperinflation that we can use to predict a similar event in the near future?
What did we learn from the 1970's hyperinflation that we can use to better our lives in some way if the event occurs again? i.e. I am a fan of having several months worth of stored food at home for emergency preparedness. If hyperinflation kicks in, I'd be willing to reduce my food stores in exchange for cost savings. For example suppose I keep 6 months worth of stored food that I rotate into my regular diet. I'd eat down to 3 months worth of food, and reduce my stores to 3 months, so I can avoid buying food for 3 months, at the hyperinflated prices, with the hope that food prices will drop in the future at the "cost" of reducing my ability to protect myself in a disaster.
I am also a fan of pre-buying durable goods that I am confident I will use, especially when they are on sale. For example, I like a certain type of running sneaker and when they go on sale I will forward buy several pairs at 50% off. In hyperinflation, I can avoid buying new sneakers and simply use the several I bought on sale in the past. If hyperinflation doesn't hit, then I just wear these sneakers over time as intended anyway, with no additional cost to me, and in fact I get cost benefits since I bought them cheaper.
What Happened Pre-70's HyperInflation?
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Re: What Happened Pre-70's HyperInflation?
Not to shoot this thread in the foot, but the 1970's was NOT hyperinflation. It was just "bad inflation."
Hyperinflation is when you have something like 100%-600% inflation in a year or something... much like jumping from the 30th story of a building, I'm quite sure it doesn't just result in some broken bones, but has been death of a currency ever time it has occured. Basically, it's the breakdown of the entire state.
To your question, I tend to be a non-Austrian, so I'm probably not going to agree with some of the answers here, but I'll admit that Keynesians and even MMT/MMRists are all but silent or "short" on the issue of the 1970's and it annoys me to no end.
I tend to think that there were a few factors:
1) Oil crises
2) War
3) Breaking clean off a previous gold standard and causing a bit of panic, and basically introducing a misunderstood new currency into the system.
4) "Bad government"
5) Strong unions and lots of domestic savings that gave people bargaining power to make labor and borrowing costs rise.
Hyperinflation is when you have something like 100%-600% inflation in a year or something... much like jumping from the 30th story of a building, I'm quite sure it doesn't just result in some broken bones, but has been death of a currency ever time it has occured. Basically, it's the breakdown of the entire state.
To your question, I tend to be a non-Austrian, so I'm probably not going to agree with some of the answers here, but I'll admit that Keynesians and even MMT/MMRists are all but silent or "short" on the issue of the 1970's and it annoys me to no end.
I tend to think that there were a few factors:
1) Oil crises
2) War
3) Breaking clean off a previous gold standard and causing a bit of panic, and basically introducing a misunderstood new currency into the system.
4) "Bad government"
5) Strong unions and lots of domestic savings that gave people bargaining power to make labor and borrowing costs rise.
Last edited by moda0306 on Tue Feb 28, 2012 7:10 pm, edited 1 time in total.
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Re: What Happened Pre-70's HyperInflation?
I'm going to make a prediction about what caused the 1970s hyperinflation:TripleB wrote: The US had hyperinflation in the 1970s. What happened that sparked it? Did we have indications? Did we have massive deflation before it?
It was two things:
- Single income households switching to dual income households - Millions of women entered the workforce and turned single income households into dual income households.
- The invention of unsecured, revolving consumer credit - Millions of households got credit cards and started charging goods to them. This was exacerbated by the hyper-inflation in housing, which caused people to get even more revolving credit. All good bubbles are self-sustaining during the exponential growth phase.
Now, look at things - you have the same tailwinds switching to headwinds: You have baby boomers entering retirement phase and leaving the workforce, taking an income reduction, at the same time you have massive consumer revolving credit deleveraging due to the housing crash and massive global deleveraging that is happening.
Summary: If you expect the 2010s to repeat the 1970s hyperinflation, you're going to be sorely disappointed.
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Re: What Happened Pre-70's HyperInflation?
I think it had a lot to do with the war, the oil price bump and the growth of consumer credit.
Plus, there was a strong blue collar union movement at that time and they were able to gain wage increases somewhat matching inflation. Not nearly as many blue collar workers any more, however ... and few of those remaining are unionized. This will hold inflation back a bit.
Plus, there was a strong blue collar union movement at that time and they were able to gain wage increases somewhat matching inflation. Not nearly as many blue collar workers any more, however ... and few of those remaining are unionized. This will hold inflation back a bit.
Re: What Happened Pre-70's HyperInflation?
That's absolutely right. Inflation was a big worry, but it was pretty orderly and there was nothing close to the kind of chaos that accompanies a hyperinflation.moda0306 wrote: Not to shoot this thread in the foot, but the 1970's was NOT hyperinflation. It was just "bad inflation."
Last edited by HB Reader on Tue Feb 28, 2012 8:52 pm, edited 1 time in total.
Re: What Happened Pre-70's HyperInflation?
Eastbay is a buddy of mine from another forum.Eastbay wrote: I think it had a lot to do with the war, the oil price bump and the growth of consumer credit.
Plus, there was a strong blue collar union movement at that time and they were able to gain wage increases somewhat matching inflation. Not nearly as many blue collar workers any more, however ... and few of those remaining are unionized. This will hold inflation back a bit.
Welcome, my friend.
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Re: What Happened Pre-70's HyperInflation?
Thanks, MT. I've been too busy writing these past few years to do much doodling on forums. But after reading some of the thoughts and insights posted here, I'm impressed!
I'm waiting for inflation to begin. Keep in mind a basic law of economics, "the more of something there is, the less it's worth." And there are trillions of dollars getting added each year. It's just a matter of time.
When I read oil's up to $XXX/bbl I think, "oil didn't rise, the dollar just weakened."
I'm waiting for inflation to begin. Keep in mind a basic law of economics, "the more of something there is, the less it's worth." And there are trillions of dollars getting added each year. It's just a matter of time.
When I read oil's up to $XXX/bbl I think, "oil didn't rise, the dollar just weakened."
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Re: What Happened Pre-70's HyperInflation?
The nasty inflation of the 1970's - early 80's was the product of a number of factors.
First was the out of control spending we saw during the late 1960's when Lyndon Johnson, like George Bush 40 years later, kept his war off the budget books. And then there was the so called war on poverty which was also hugely expensive and generally unpaid for. In theory the United States Dollar was still tied to gold until 1971. But it was becoming increasingly clear that this was a complete fiction. As the rest of the world began to catch on to the games we were playing they realized we were massively cheating in terms of the money supply. When they began to demand huge amounts of our nations gold reserves it was clear that jig was up and Nixon closed the gold window and ended our last remaining ties to gold.
Secondly we had the monetary policies that were calculated to mitigate the huge debt that Nixon inherited from Johnson. One of Nixon's most consequential appointments came in 1970 when he named Arthur Burns as Chairman of Federal Reserve. Nixon, perceiving the enormity of the fiscal crisis confronting the country saw inflation as the only way out. He made it VERY clear he expected the FED to keep interest rates at rock bottom and for the most part Burns acquiesced to that demand. Throughout his tenure as the FED chief (1970-1978) interest rates remained extremely low and the money supply began to rise rapidly with the predictable results.
Thirdly, as mentioned earlier we had the oil shock of the early 70's. This created a high level of sector oriented inflation.
Fourth, the stock market tanked in 1973 and the nation went into a prolonged period of economic stagnation. During this time it became increasingly difficult to even discuss raising interest rates at the FED despite the sharply rising inflation. The very few attempts at modest rate increases were rapidly abandoned when the economy and financial markets reacted badly.
Fifth, Nixon attempted to impose wage and price controls which predictably only aggravated the situation and created a black market for goods and services with much higher prices attached.
There were a number of other factors but these strike me as the big ones. Nixon inherited a fiscal disaster with the only options being the classic choice facing all nations that dig themselves into a huge debt trap. Brutal austerity, drastically higher taxes, or debase the currency. Nixon may have been a crook but he was no dummy. He sensibly chose the latter course of action. Gerald Ford, Nixon's affable and scrupulously honest successor, made some noises about fighting inflation, but he too seems to have understood that it was a bitter pill that needed to be swallowed.
The inflation of the 1970's was terribly unpleasant and greatly contributed to the economic stagnation that has been so closely identified with a decade also infamous for high crime, bell bottom pants, platform shoes, lava lamps, disco and the coup de grace for fashion... the plaid polyester leisure suit. BUT... it was probably the best (and least painful) means for dealing with the national debt at the time. Not to mention it was also probably the only politically viable course of action. The fact remains that when Paul Volker finally moved to decisively crush the runaway inflation in the early 80's we had effectively inflated away a very substantial chunk of the debt from Lyndon Johnson's two failed wars, and to some degree World War II and Korea.
ALL political leaders say they abhor inflation. In reality most accept it as the lesser of evils in some situations.
First was the out of control spending we saw during the late 1960's when Lyndon Johnson, like George Bush 40 years later, kept his war off the budget books. And then there was the so called war on poverty which was also hugely expensive and generally unpaid for. In theory the United States Dollar was still tied to gold until 1971. But it was becoming increasingly clear that this was a complete fiction. As the rest of the world began to catch on to the games we were playing they realized we were massively cheating in terms of the money supply. When they began to demand huge amounts of our nations gold reserves it was clear that jig was up and Nixon closed the gold window and ended our last remaining ties to gold.
Secondly we had the monetary policies that were calculated to mitigate the huge debt that Nixon inherited from Johnson. One of Nixon's most consequential appointments came in 1970 when he named Arthur Burns as Chairman of Federal Reserve. Nixon, perceiving the enormity of the fiscal crisis confronting the country saw inflation as the only way out. He made it VERY clear he expected the FED to keep interest rates at rock bottom and for the most part Burns acquiesced to that demand. Throughout his tenure as the FED chief (1970-1978) interest rates remained extremely low and the money supply began to rise rapidly with the predictable results.
Thirdly, as mentioned earlier we had the oil shock of the early 70's. This created a high level of sector oriented inflation.
Fourth, the stock market tanked in 1973 and the nation went into a prolonged period of economic stagnation. During this time it became increasingly difficult to even discuss raising interest rates at the FED despite the sharply rising inflation. The very few attempts at modest rate increases were rapidly abandoned when the economy and financial markets reacted badly.
Fifth, Nixon attempted to impose wage and price controls which predictably only aggravated the situation and created a black market for goods and services with much higher prices attached.
There were a number of other factors but these strike me as the big ones. Nixon inherited a fiscal disaster with the only options being the classic choice facing all nations that dig themselves into a huge debt trap. Brutal austerity, drastically higher taxes, or debase the currency. Nixon may have been a crook but he was no dummy. He sensibly chose the latter course of action. Gerald Ford, Nixon's affable and scrupulously honest successor, made some noises about fighting inflation, but he too seems to have understood that it was a bitter pill that needed to be swallowed.
The inflation of the 1970's was terribly unpleasant and greatly contributed to the economic stagnation that has been so closely identified with a decade also infamous for high crime, bell bottom pants, platform shoes, lava lamps, disco and the coup de grace for fashion... the plaid polyester leisure suit. BUT... it was probably the best (and least painful) means for dealing with the national debt at the time. Not to mention it was also probably the only politically viable course of action. The fact remains that when Paul Volker finally moved to decisively crush the runaway inflation in the early 80's we had effectively inflated away a very substantial chunk of the debt from Lyndon Johnson's two failed wars, and to some degree World War II and Korea.
ALL political leaders say they abhor inflation. In reality most accept it as the lesser of evils in some situations.
Last edited by Ad Orientem on Wed Feb 29, 2012 12:35 am, edited 1 time in total.
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Re: What Happened Pre-70's HyperInflation?
TripleB, Ad Orientem pretty much nailed it. I'll add that debasing the currency--in the form of negative real interest rates--acts as a buoy for price inflation. The important thing to point out is that it's not necessary to have high nominal rates of price inflation if real rates are sufficiently negative. In other words, a FFR of 11% at 14% CPI (as in the 70s) is the same as FFR of 0% at 3% CPI (as the 00's-today). Both debase the real value of currency denominated instruments such as savings and debt. That's why gold does what it does. As soon as Volker raised rates to get ahead of price inflation...poof! There goes rising inflation and the gold price.
As Ad Orientem pointed out, debasing the currency is the politically expedient way to deal with secular bear markets and fiscal shenanigans. Everyone knows when they don't have a job and the stock market crashes. Not everyone connects the dots when they have a job but their savings are being debased.
As Ad Orientem pointed out, debasing the currency is the politically expedient way to deal with secular bear markets and fiscal shenanigans. Everyone knows when they don't have a job and the stock market crashes. Not everyone connects the dots when they have a job but their savings are being debased.
Re: What Happened Pre-70's HyperInflation?
Some great insights, but are you saying inflation causes bad fashion? Looks like we could be in for some tough times ahead:Ad Orientem wrote: The inflation of the 1970's was terribly unpleasant and greatly contributed to the economic stagnation that has been so closely identified with a decade also infamous for high crime, bell bottom pants, platform shoes, lava lamps, disco and the coup de grace for fashion... the plaid polyester leisure suit.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
Re: What Happened Pre-70's HyperInflation?
http://www.usgovernmentspending.com/deb ... _brief.php
Ad Orientem,
The debt-to-gdp ratio was at all-time-20th-century-lows during the 1970's, and then exploded in the 1980's, as inflation started to tame itself.
I think most of what you wrote is pretty spot-on, but that part of the narrative doesn't seem to make much sense. This would also fit into how "expensive" the war on poverty truly was.
Ad Orientem,
The debt-to-gdp ratio was at all-time-20th-century-lows during the 1970's, and then exploded in the 1980's, as inflation started to tame itself.
I think most of what you wrote is pretty spot-on, but that part of the narrative doesn't seem to make much sense. This would also fit into how "expensive" the war on poverty truly was.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: What Happened Pre-70's HyperInflation?
Expanding money in the hands of the proles creates consumer price inflation, expanding money in the hands of the moneyed interests creates asset price inflation. The 1970s stagflation was cured by ensuring that wealth inequality increased as fast as the money supply. Its not simply domestic wealth inequality that is needed, its global. You need to have domestic asset price inflation and high interest rates to lure in capital flows from abroad and you need foreign countries to have wealth inequality so that all their money is in a few hands and their elite then syphons their money into your asset markets.
I don't think it is a sustainable process. Basically if you have as a starting point a high wage, consumer society then you can bleed it down by having ever increasing inequality but it will become bled dry soon enough. Then your elite will look to put their money in foreign markets that have the consumers and the process will reverse.
I don't think it is a sustainable process. Basically if you have as a starting point a high wage, consumer society then you can bleed it down by having ever increasing inequality but it will become bled dry soon enough. Then your elite will look to put their money in foreign markets that have the consumers and the process will reverse.
Last edited by stone on Wed Feb 29, 2012 12:54 pm, edited 1 time in total.
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Ad Orientem
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Re: What Happened Pre-70's HyperInflation?
StormStorm wrote:Some great insights, but are you saying inflation causes bad fashion? Looks like we could be in for some tough times ahead:Ad Orientem wrote: The inflation of the 1970's was terribly unpleasant and greatly contributed to the economic stagnation that has been so closely identified with a decade also infamous for high crime, bell bottom pants, platform shoes, lava lamps, disco and the coup de grace for fashion... the plaid polyester leisure suit.
If the subject is men's fashion all I can say is we have been in a roughly 50 year bear market with little hope of improvement on the horizon.
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Re: What Happened Pre-70's HyperInflation?
My understanding is that the plan is to eventually come up with a single line of clothing that is equally suitable for men or women.Ad Orientem wrote: Storm
If the subject is men's fashion all I can say is we have been in a roughly 50 year bear market with little hope of improvement on the horizon.
Since women control much of the fashion industry this means that men's clothing has become more feminine.
Perhaps we are in the early stages of the narrative from the movie "Zardoz." If you have not seen it I recommend it. Very stimulating.
http://en.wikipedia.org/wiki/Zardoz
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: What Happened Pre-70's HyperInflation?
This is something I'm also interested in understanding better. I've not read them yet, but here are some resources that look useful to me:TripleB wrote: I'm not going to attempt to predict impending hyperinflation and make investment decisions based on it, but I may make speculations based on it as part of the VP. Also, for general curiosity, I'd like to understand the scenario better.
"When Money Dies: The Nightmare of the Weimar Hyper-Inflation" by Adam Fergusson (German hyperinflation in the 1920s)
"The Modern Survival Manual: Surviving the Economic Collapse" by Fernando Ferfal Aguirre (Argentinian hyperinflation of 2001)
"Reinventing Collapse: The Soviet Experience & American Prospects" by Dmitry Orlov (end of USSR in the early 1990s)
I'll let you know when I've looked into them and I'd love to hear other opinions if anyone has read them. Just going on reviews, the one on Germany looks like the best written of the three.
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Ad Orientem
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Re: What Happened Pre-70's HyperInflation?
There are two other books I would recommend. First try "Dying of Money" by Jens Parsson. It is available online (free) here.Jake wrote:This is something I'm also interested in understanding better. I've not read them yet, but here are some resources that look useful to me:TripleB wrote: I'm not going to attempt to predict impending hyperinflation and make investment decisions based on it, but I may make speculations based on it as part of the VP. Also, for general curiosity, I'd like to understand the scenario better.
"When Money Dies: The Nightmare of the Weimar Hyper-Inflation" by Adam Fergusson (German hyperinflation in the 1920s)
"The Modern Survival Manual: Surviving the Economic Collapse" by Fernando Ferfal Aguirre (Argentinian hyperinflation of 2001)
"Reinventing Collapse: The Soviet Experience & American Prospects" by Dmitry Orlov (end of USSR in the early 1990s)
I'll let you know when I've looked into them and I'd love to hear other opinions if anyone has read them. Just going on reviews, the one on Germany looks like the best written of the three.
The second is "This Time is Different: Eight Centuries of Financial Folly" by Carmen Reinhart and Kenneth Rogoff. This book is rather dry reading but it is absolutely packed with insightful information and data. It is also quite chilling in the parallels it draws between previous episodes of fiscal and monetary collapse and the current trajectory of the United States.
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Re: What Happened Pre-70's HyperInflation?
I second the recommendation for "This Time It's Different". Very dry, took me a lot of evenings to get thru but packed full of information very well researched and documented.
I also enjoyed "When Money Dies" (OK, enjoyed is probably the wrong word... more like that fascination upon seeing a wreck you are not in while realizing you could have been and could yet be). Good information, decently written. A similar but short and free online (I think on usagold.com) is "Hyperinflation in 1923 Germany". It is rather one-sided, but I think the perspective is valuable and it is a quick read.
Another, "Fiat Money in France: How It Came, What It Brought, How It Ended" by Andrew Dickson White, Project Gutenberg #6949.
Stuff like the 1970's is a hardship, but far from a disaster. Those disaster scenarios scare me to death. And they are not rare. I will do anything short of causing myself a personal disaster in order to prepare myself and family to cope with the disaster. Just like buying home and/or auto insurance. Over 20 years, never a claim. Will not be without it even tho the odds are low, the risk is high.
Another good reference re. the U.S. dollar, not so much about crisis, is "Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution" by Edwin Vieira Jr. It explains what happened and how we got here from a legal perspective. I won't fib and claim to have read the entire thing (two THICK volumes) but I've read a large part of it and thumbed thru a lot. I have the GoldMoney Foundation edition. Well worth the money. (paid 2x what I would have paid had I not procrastinated my first opportunity, but glad to pay that and have the information.)
"The Economic Consequences of the Peace" by John Maynard Keynes. I think you can find this in a free ebook perhaps on mises.org. Keynes was prolific if nothing else. This book has some good insights, even if I mostly draw different conclusions (and overall have much less trust in government to do the right thing).
I also enjoyed "When Money Dies" (OK, enjoyed is probably the wrong word... more like that fascination upon seeing a wreck you are not in while realizing you could have been and could yet be). Good information, decently written. A similar but short and free online (I think on usagold.com) is "Hyperinflation in 1923 Germany". It is rather one-sided, but I think the perspective is valuable and it is a quick read.
Another, "Fiat Money in France: How It Came, What It Brought, How It Ended" by Andrew Dickson White, Project Gutenberg #6949.
Stuff like the 1970's is a hardship, but far from a disaster. Those disaster scenarios scare me to death. And they are not rare. I will do anything short of causing myself a personal disaster in order to prepare myself and family to cope with the disaster. Just like buying home and/or auto insurance. Over 20 years, never a claim. Will not be without it even tho the odds are low, the risk is high.
Another good reference re. the U.S. dollar, not so much about crisis, is "Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution" by Edwin Vieira Jr. It explains what happened and how we got here from a legal perspective. I won't fib and claim to have read the entire thing (two THICK volumes) but I've read a large part of it and thumbed thru a lot. I have the GoldMoney Foundation edition. Well worth the money. (paid 2x what I would have paid had I not procrastinated my first opportunity, but glad to pay that and have the information.)
"The Economic Consequences of the Peace" by John Maynard Keynes. I think you can find this in a free ebook perhaps on mises.org. Keynes was prolific if nothing else. This book has some good insights, even if I mostly draw different conclusions (and overall have much less trust in government to do the right thing).